Punishment to fit the corporate crime

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Bernard Ebbers' stiff sentence is indicative of a change in
attitude to white-collar offences, by Brooke Masters and Carrie
Johnson.

In the early 1990s Wall Street titan Michael Milken was
sentenced to 10 years in prison for his role in the financial
scandal of the day, served less than two years and emerged with
most of his fortune. Last Wednesday former WorldCom chief executive
Bernard Ebbers was sentenced to 25 years after already surrendering
most of his millions.

At least two things worked against the former telecommunications
chief, legal analysts said. Judges and prosecutors these days think
huge sentences are necessary to deter corporate crime, and
society's thirst for vengeance has increased as well.

Stiff sentences like Ebbers's and the 15-year term handed down
recently to Adelphia Communications Corp's founder, John Rigas, 80,
are having a positive effect on corporate behaviour, said former
prosecutor Seth Farber.

"I think corporate executives are very aware of the recent spate
of prosecutions and enforcement actions. People do feel the risk of
personal exposure. It's causing people to be more cautious in how
they act," he said.

But some lawyers are asking whether the pendulum has swung too
far.

"This sentence is too harsh. I don't get the societal purpose
that is served by the notion that he's going to die in prison,"
said defense attorney Charles Stillman, who represented another
corporate executive recently brought low - former Tyco
International finance chief Mark Swartz. "In Europe they don't have
sentences like this. Is everybody stealing over there?"

Ebbers came up for sentencing at an especially unfavourable time
for his central role in a scheme to hide WorldCom's expenses and
inflate revenue. In the early 1990s the financial world was shocked
that powerful people such as Milken and inside trader Ivan Boesky
were going to jail at all. Milken's 10-year sentence was considered
harsh at the time, but he was eligible for parole after three years
and a judge reduced his sentence to 22 months because he cooperated
with the government.

After a new wave of corporate scandals broke in 2002, small
investors revolted and many argued that more had to be done to stop
financial crime. The US federal guidelines for white-collar crime
have grown steadily stiffer, with more emphasis placed on the
losses investors incurred. And parole has been abolished in the
federal system, so Ebbers has little hope of cutting down his
sentence.

US District Judge Barbara Jones cut Ebbers a slight break when
she handed down a 25-year sentence — the guidelines
recommended 30 years to life for a financial crime of this
magnitude. "Bernie Ebbers was transformed into a symbol, a
distorted picture of corporate corruption" that did not reflect his
"life of unbelievable kindness", his lawyer, Reid Weingarten, said
after the sentencing. He vowed to appeal.

Defense attorney Kirby Behre said Ebbers's sentence can be seen
as an over-compensation for the earlier era.

"Some believed those sentences (in the late 1980s and early
1990s) had very little deterrent effect. Now the pendulum has swung
but it's swung too far the other way," he said.

"To blame the entire chain of events" — including
WorldCom's June 2002 decision to seek bankruptcy protection —
"on Ebbers, without taking into account the contribution of others
and the impact of an irrational Wall Street, I don't think that's
absolutely fair".

Veteran defense attorney Robert Morvillo said it is unlikely the
Ebbers sentence will deter others.

"If the sentence was five years, the deterrent impact would have
been precisely the same," he said. "Nobody goes so far down the
line that they say, 'Oh my God, I might get 20 years rather than
15.' "

Far more effective, Morvillo said, are the financial penalties
extracted from Ebbers before sentencing.

Late last month Ebbers agreed to give up or sell 95 per cent of
everything he owned to raise about $US45 million to settle the
claims of investors who lost money when WorldCom collapsed into
bankruptcy protection.

"If greed is a motivating factor, taking away the benefits of
the commission of the crime and leaving people and their families
in a state of economic insecurity … has more of a deterrent
effect," he said.

But other legal analysts said harsh prison sentences are vital
because they not only deter bad behaviour, they make it easier to
persuade lower-level executives involved in fraud to cooperate with
prosecutors.

"It's critical for the government that the sentences of those
people who do go to trial be made exemplars" with long prison
terms, said Fordham University law professor Daniel Richman, a
former federal prosecutor. That way "defendants who are guilty
accept responsibility and plead guilty and potential defendants
come forward and give the government information and get a much
lighter sentence".

That tough message is particularly necessary right now, some
analysts said, because of the acquittal last month of HealthSouth
Corp founder Richard Scrushy. At the outset, the government's case
against Scrushy appeared much stronger than its evidence against
Ebbers — all five former HealthSouth finance chiefs had
implicated Scrushy in the $US2.7 billion accounting scam, while the
case against Ebbers rested squarely on the shoulders of former
finance chief Scott Sullivan, the only witness to testify that
Ebbers had personally directed him to commit an $11-billion
fraud.

"This will help soften the deleterious effect of the Scrushy
verdict," said University of Texas law professor Henry T.C. Hu.

"You don't want the decision about whether or not to commit
fraud to become a cost-benefit calculation." If Ebbers had gotten a
short sentence on top of Scrushy's acquittal, Hu said, some
corporate officers might think, "Hey — a lifetime of wealth;
it might be worth it".